As demand for middle market and affordable housing increases—especially considering that the multifamily niche typically has the lowest vacancy rates in the asset class—investor demand for the product type increases. However, it requires a tailored loan product to make the deal, in many cases. While most lending sources are staying out of the affordable housing game, the agencies are fulfilling the tremendous demand to fund affordable housing deals.

“The agencies have remained mission-centric in looking to maintain or create continued affordable housing across the country,” Jeff Erxleben, regional managing director and EVP at Northmarq Capital, tells GlobeSt.com. “So, you have to talk about the agencies. Those are the gorillas. Each one is doing $70 billion in round numbers. They are really the market marker, and part of their mission is affordable housing. They see if as serious stuff, and they want to make sure they are getting creative about creating.”

The agencies have been so committed, in fact, Erxleben expects to see more loan products this year focused on affordable housing deals. This will allow investors to take advantage of acquisition opportunities for affordable housing. “I think that you will see new product development come out from both Freddie and Fannie throughout 2018 that will help support the demand for affordable,” he says. “I think that investor demand in terms of opportunities to go into affordable deals will remain strong. Part of that is largely supported by liquidity on the debt side, which will be supported by Freddie and Fannie.”

However, don't expect other capital sources to follow suit. Erxleben says that he hasn't seen much in the way of new loan products for affordable housing outside of the agencies. “Not to the extent that other agencies are,” Erxleben explains. “Other lending sources are not as programmatic as the agencies. Freddie, Fannie and even FHA are far more programmatic for affordable housing. It is probably something—and this is just a personal opinion—that we need more lender participation in, but we really haven't seen it wide spread outside of the agencies filling that bucket.”

Instant Insights /

How Investors Pull Off Affordable Housing Deals

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